Dropoff raises $7 million to take on old-school courier services

Startups are coming up with fresh approaches to nearly every industry, and courier services are no exception.

Austin-based company Dropoff is building a same-day delivery service for businesses, and has been operating in Austin and Houston for the past year. On Monday, the company announced it has raised $7 million in new funding to help it expand to more cities and continue to build out its product.

While very similar to traditional couriers that businesses have been using for years, Dropoff says its selling point is the much better experience it provides thanks to things like down-to-the-minute arrival time estimates, realtime-tracking, and upfront and transparent pricing, among other things. It uses couriers on either bike, car, van, or SUV, based on the delivery.

Dropoff’s customers largely fall into two category of delivery needs: traditional and e-commerce. Some customers use the service for very traditional business courier needs, like delivering documents and machinery parts. Dropoff’s e-commerce clients use the service to deliver their wares, like cupcakes or flowers, to their customers.

For Hey Cupcake, a Texas-based cupcake company, Dropoff has taken over nearly all of its delivery duties, CEO Frank Drew told Fortune. At the first, the company, which has seven stores in Austin but does all its baking in one central location, was using Dropoff for any additional deliveries to its stores, as well as to any customers that its own drivers couldn’t handle. Now it’s turned over all of its deliveries to Dropoff, except for catering jobs. Drew and his team no longer have to worry about predicting how many drivers they need to staff on any given day with unpredictable demand, he says.

“Now I feel like we’re in the cupcake business, not in the delivery business,” he said of his newfound freedom from managing his deliveries.

The delivery service market is certainly getting crowded, with everyone from Postmates to ride-hailing companies like Uber and Sidecar getting into the business. Companies like Amazon have been heating up the logistics space with the e-commerce giant’s popular two-day delivery option and its same-day Amazon Fresh service for grocery items. But Dropoff says it’s different and not worried about other companies because it’s exclusively focused on the needs of businesses, not on servicing consumers as Postmates does, for example. While that sometimes means Dropoff’s couriers make deliveries directly to a client’s customers, it’s only type of delivery the company makes, and it’s not in the business of acquiring consumers as its customers.

For Paul Bricault, who headed Greycroft Partner’s investment in Dropoff in this new round, that enterprise focus is what distinguished Dropoff from others.

With that said, Dropoff is sure to face challenges as it continues to grow. It will have to navigate the unique geography and industries of each new city it expands into, ensure it maintains the quality of its drivers as it increases hires, and handle potential regulation issues that may arise, among many other hurdles.

Spector founded Dropoff with Christian Carollo, Ted Hong, and Jason Klann in late 2013. Greycroft Partners led this latest round, with Correlation Ventures, Texas Atlantic Capital, Wild Basic Investments, and others also participating. The company previously raised $1.85 million in funding.

The company will use the cash to grow into new markets, both internationally and in the United States, Chief Executive Officer Apoorva Mehta said in an interview.

Kleiner also backs transportation service Uber, which aspires to expand beyond offering rides and so could be viewed as an Instacart competitor. Last year, Uber launched Uber Essentials, a service that delivers nonperishable grocery and drugstore items in Washington, D.C.

But Mehta said he did not see Uber as a rival.

“There are potential ways we can work with them rather than compete with them,” he said, adding that he has talked to Uber executives about possible collaboration but has nothing to disclose currently.

Uber did not immediately respond to a request for comment.

Instacart also plans to start experimenting with other categories beyond groceries, Mehta said. While he declined to identify specifics, he said the service would likely stick to items consumers buy regularly rather than one-off items such as televisions and laptops.

Unlike grocery-delivery services from Amazon AMZN and Wal-Mart WMT, Instacart relies on individuals who visit stores to buy goods for customers, rather than storing the products in a warehouse. That cuts down on overhead, Mehta said.

He also dismissed concerns over competition from errand services such as TaskRabbit, because Instacart is specialized, allowing shoppers to check boxes rather than type out long lists on their smartphones.

The latest funding round, which values Instacart at $2 billion, comes months after a $44 million round in June. Then, the company was valued at around $400 million.

Watch more about Instacart from Fortune’s video team:

Instacart deserves a high valuation, said Kleiner partner Mood Rowghani, because its convenience factor will drive the popularity of on-demand retail far beyond today’s levels.

“We see far-reaching potential beyond merely grocery,” he said, comparing Instacart to Amazon in its early days, when the online retailer focused only on books. “This business offers mainstream appeal.”

Other new investors in the latest round include Comcast Ventures, Dragoneer Investment Group, Thrive Capital, Valiant Capital, along with existing investors Andreessen Horowitz, Khosla Ventures and Sequoia. Instacart has now raised $275 million, it said.

All the funding is primary, Mehta said, meaning it is going to the company rather than for use to buy out existing shareholders such as early employees.

When you wake up with groceries on your doorstep, don’t thank the milkman – thank the Postal Service.

The Postal Regulatory Commission approved a plan on Thursday for the Postal Service to deliver groceries between 3 a.m. and 7 a.m. The two-year market test of what it calls “Customized Delivery” is currently restricted to San Francisco, but may someday expand into a national program.

The Postal Service has been testing grocery delivery since August with Amazon’s AMZN same-day and early morning grocery service, AmazonFresh. During the operational test, the Postal Service processed an average of 160 deliveries per day in 38 zip codes.

The two-year market test is designed to help bring the Postal Service’s grocery delivery services to other major cities around the U.S. and to test other possible delivery windows. Currently, the Postal Service only makes these deliveries when mail trucks would not otherwise be in use, resulting in middle of the night and early morning drop-offs.

The regulatory commission capped annual revenue for the program at $10 million, saying that there was not yet enough financial data to estimate revenues.

If Amazon and the Postal Service can team up to expand the test to other cities, it could be a major victory for both parties. Recently, the Postal Service has been working to update the organization’s image and services, including launching lower rates for customers who ship at least 50,000 parcels a year to attract big ecommerce companies. Meanwhile, Amazon is scrambling to keep ahead of ecommerce competitors, with Google expanding its same-day delivery service.

Whole Foods and Instacart turn up the heat in the delivery wars

Instacart and Whole Foods have turned up the heat in the grocery delivery wars with a new pilot program announced today.

Instacart is a service that essentially provides customers with a personal shopper for the grocery store. Pick out the items you want online, and an Instacart personal shopper will go to your selected supermarket, do your shopping, and deliver it to your door. Right now the service is available in 15 cities at supermarkets including Whole Foods, Costco, and Kroger.

But starting next month, rather than dispatching an Instacart shopper to a Whole Foods when an order is placed, shoppers will already be embedded in its stores. The service will start in Boston and Austin before rolling out to other participating cities. The intention is to speed up delivery; the set up eliminates the precious minutes the Instacart shoppers previously needed to travel to the store, and also allows them to execute the mission faster because in theory they’ll be more familiar with the supermarkets.

Whole Foods and Instacart will also start offering a pick-up model, in which customers can come to the store to get their groceries after an Instacart worker completes their shop.

Instacart is competing against a slew of players, some—such as Google and Amazon—with almost limitless resources. In the cutthroat world of the grocery delivery business, any edge helps. Speed can act as a big attractor to customers, as can a formalized relationship with a popular outfit like Whole Foods.

It’s also in the interest of Whole Foods to support and boost services like Instacart that source product from its stores (Google Express Shopping and Postmates do something similar). The threat to their more traditional supermarket model comes from the likes of AmazonFresh, FreshDirect, and Peapod, who are attempting to disintermediate supermarkets by delivering products to customers from their own warehouses.

The partnership is a component of Whole Foods’s investment in technology. As co-CEO Walter Robb told Fortune in May, “We think our customers, of all supermarket customers, are the most technologically advanced so we need to take that to a whole other level.”

As Fortune detailed in April, by offering amenities like tap rooms and oyster-shucking stations, Whole Foods has figured out how to make itself a destination—not just a place to pick up groceries. Partnerships like the one with Instacart help the company step up its game with customers who don’t want to step into a supermarket, and couldn’t care less that a store has a rooftop greenhouse or ramen bar.